This morning's benign inflation reading and reports of
Congressional agreement to extend the payroll tax cut may not be
enough power stocks higher. But this rally defied predictions thus
far, so I wouldn't be overly surprised if stocks start heading
higher later this afternoon ahead of the President's Day
weekend.

The Consumer Price Index (
CPI
) for January came broadly in-line with market expectations, up
0.2% on the 'headline' after December's 'unchanged' reading. 'Core'
CPI, which strips out food and energy, also matched expectations,
up 0.2% after the 0.1% increase in December. The year-over-year
readings were 2.9% for the 'headline' and a tad hotter for the
'core' reading at 2.3%. In December, the year-over-year CPI
readings were 3% and 2.2% for the 'headline' and 'core,'
respectively.

Any way you look at the inflation numbers, it doesn't seem to be
problematic. The Fed pays close attention to the inflation picture,
but its statement following the January FOMC statement
characterized price pressures as 'subdued.' Today's CPI reading not
only confirms the Central Bank's assessment, but also leaves open
the door for further quantitative easing should conditions
warrant.

Minutes of the last Fed meeting released earlier this week
showed a divided FOMC on the need for additional quantitative
easing. But the fact remains that the committee has supporters of
further easing.

We will also get the Conference Board's Leading Economic
Indicators for January, but the release is unlikely to be a major
market mover today. In another favorable development, Congress
appears on track to extend the payroll tax cut for the rest of the
year, on an unusually bipartisan basis. Please recall that the
earlier three-month extension late last year followed an extremely
noisy and rancorous debate. In addition to the tax cut extension,
the package includes extended unemployment benefits, and a Medicate
reimbursement fix.

After reporting lackluster fourth quarter results, hurt by
higher game development costs, social game maker
Zynga Inc.
(
ZNGA
) is gearing up to turn publisher, much akin to its closest
competitor
Electronic Arts Inc
(
EA
).

According to a recent report from Bloomberg, Zynga is expected
to launch a new publishing program in March this year that will
allow third party developers to showcase their games as well as
advertise on the company's platform.

The publishing program is somewhat similar to Zynga's
direct-to-customer platform "Zynga Live" or Project Z, which was
unveiled in October last year. Zynga Live allows customers to play
games from anywhere (web or mobile) without accessing through
Facebook or any other social networking site.

Zynga primarily generates revenue through the in-game sale of
virtual goods in exchange of Facebook credits, which is a form of
virtual currency. Much of Zynga's success is attributed to the
massive popularity of Facebook, which generates more than 90% of
Zynga's gross revenue.

However, Facebook charges a hefty 30% of this revenue, which has
been a bone of contention for many developers such as Zynga over
the last couple of years. It is rumored that in light of such a
scenario, Zynga launched its standalone portal Farmville.com in an
attempt to distance itself from Facebook.

We believe that the idea of foraying into the publishing arena
will not only reduce Zynga's dependence on Facebook but also
diversify its revenue base going forward. As per details of the
program available from Bloomberg, third party developers will still
have to pay a fee to Facebook (since most of the developers use
Facebook Credit), but Zynga will also get a percentage of sales for
its services, which is expected to drive its advertising revenue
going forward.

We also believe that, through the publishing program, Zynga will
be able to further expand its existing game portfolio, without
incurring significant in-house game development costs. However, we
believe that publishing is an uncharted area for Zynga and the
company will face stiff competition from EA, which is already a
dominant player in the publishing business.

In a bid to further diversify its revenue stream, Zynga also
entered into a partnership with toy maker Hasbro. Under the terms
of the agreement, Hasbro will develop toys and games based on
Zynga's most popular titles like FarmVille, CityVille and Mafia
Wars and will pay a licensing fee based on sales. We believe that
this new source of revenue will further boost Zynga's top line
going forward.

We remain Neutral over the long term (6-12 months). Currently,
Zynga has a Zacks #2 Rank, which implies a Buy rating over the near
term (1-3 months).

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